Nano Dimension Ltd. Q3 FY2024 earnings call

• Yoav is at Formnext, the Industry LED Manufacturing tradeshow, with high interest in their work.
• Announced and closing Desktop Metal acquisition, with Markforged acquisition to follow.
• Notable sales to Applied Materials, University of Dayton, and a leading aerospace and defense company.
• Close to Annual General Meeting in December 6, fighting against shareholders trying to dismantle the company.
• Turned around Nano Dimension from $16 million net cash burn per quarter last year to $3 million net cash burn currently.
• The two acquisitions were bought at less than 1x sales multiple, expected to create an industry leader.
• Focus moving forward is on gross margin and profitability, using cash to generate profits.

Revenue for the third quarter was $15 million, the best third quarter ever and 22% higher than last year's same period. Gross margin was 48%, up from 44%, and adjusted gross margin (excluding non-cash expenses) was 51%, up from 48%. The original Nano segment had 29% organic growth. The two acquisitions (Desktop Metal and Markforged) will bring the combined 2023 pro forma revenue to $340 million.

• Expect to close Desktop Metal acquisition by end of 2024 and Markforged in Q1 2025.
• Hoping for profitability or cash flow positive by early 2026 through expense cuts after merging the companies.

• Concern about activist shareholders possibly derailing the acquisitions if they gain board seats.
• Regulatory processes like CFIUS for the acquisitions, which could take time but are expected to be resolved.

Q: Could you give us a bit of detail on the reaction you had from your customers to the news about your two proposed acquisitions. Secondly, just a quick update from a regulatory perspective of where you are with both of the acquisitions, and just to confirm that you still expect to complete Desktop Metal in Q4 and Markforged in Q1 of next year. And then thirdly, just to also confirm, it sounds as if what you're saying is that you get to breakeven EBITDA, which I think you've referenced as being in Q4 of 2026, but that's going to be more through a process of cost synergies rather than revenue synergies?

A: First question, customers are extremely excited, with many coming to discuss future product lines. Secondly, regulatory work for Desktop Metal is close to done, CFIUS process nearly finished, expecting to close Desktop Metal by end of year; Markforged's shareholder vote in early Dec, expected to close in Q1 2025. Regarding EBITDA, first few quarters will see improved cash flow, with expense cuts after merging companies aiming for profitability/cash flow positive by early 2026.

Q: You spoke about the various aspects that closing the Desktop Metals merger, the next-step with Markforged, which again the elephant in the room is the fact that there is an AGM right now and you speak about it asking everybody to vote. But the question -- the big question is, if with this the activists right now, if they are successful installing 2 directors into the Board, is there any concern of them derailing, killing these transactions? Obviously, this is a big consideration for every shareholder in this AGM. I'd love to hear your feedback on that. And you also mentioned the aspects of the CFIUS. What is that process? What does it mean for us as shareholders? And where is that process going to take us?

A: CFIUS is a typical US regulatory process, went through it with Desktop Metals, questions mostly answered, expect it to finish soon. Regarding activists, they are a minority on the board, unlikely to derail deals as minority can't affect decisions, and deals are legally committed. The CFIUS process is expected to be resolved without issues, moving the acquisitions forward.

Q: Wanted to get a better understanding of the M&A rationale here. The past 5 acquisitions for DeepCube, NanoFabrica, Essemtec, Global Inkjet and Formatec, they don't seem to have been integrated very well given their revenue growth has really deteriorated under Nano's leadership. All those companies had gross margins of between, I believe it was 55% to 60% as reported by Nano, but Nano just reported a gross margin of 48.2% this quarter. So, the synergies didn't seem to really materialize there either. So, for Markforged and Desktop Metal, I think right now they're experiencing negative revenue growth and they have a gross margin profile that is actually below what Nano currently has and they continue to burn astronomical amounts of investor cash and are therefore on the verge of bankruptcy. So how does it make any sense to be acquiring these businesses with investor cash? I think in your presentation you said the rationale seems to be the low sales multiple. But if we look at a company like Spirit Airlines, which had $1 billion in revenue and just filed for bankruptcy, it's clear that that method doesn't work very well. A low multiple doesn't seem to be enough to justify buying a cash burning business. In addition to that, I think you're defining net cash burn as -- A: Previous acquisitions had lower margins when bought, had lower revenue when bought. Current acquisitions have valuable technologies and customers, merging them will create synergies. Markforged's gross margin is close to 50% like Nano's, and we'll take it higher. Desktop Metal has some businesses with lower margins, which we'll adjust. The analogy to Spirit Airlines is irrelevant to industrial business; merging companies with proper strategy creates value.